XTS is dead. Long live XTS. Panasonic sees "radical change" coming

Panasonic Avionics spends a lot of money on satellite capacity. With approximately 1,750 aircraft flying today and a commitment of ~4,000 the company faces a continuous need to grow. Historically that meant commissioning satellites and operating as an anchor tenant in the Geostationary market. The eXtreme Throughput Satellite (XTS) network was supposed to further that plan, with up to 6 payloads custom designed for PAC’s needs.

Now it appears that the LEO/MEO revolution may have spooked the company. The company is shifting gears after a year of delaying further details about XTS. Which is not to say XTS is dead, but it will likely look very different from what the company initially intended.

For David Bruner, VP of Global Sales & Marketing, this change may be slightly tough to stomach. He led the charge in the XTS architecture and in recent comments at the APEX EXPO conference in Long Beach, CA he remained skeptical of the business around the massive constellations of SpaceX, O3b and others. But he is willing to acknowledge that they are going to be flying soon, and that may ultimately work to PAC’s advantage.

Radical change is coming to the satellite marketplace in the 2020-2022 timeframe that is going to shake the foundation. It is the advent of the non-geosynchronous satellites, the LEOs and MEOs. And we can debate and have a lot of fun talking about whether they are going to survive and do they have business cases that work. It doesn’t matter if I like the business case or not. They are entering service. They will disrupt our business. These things are happening. We are going to be in a mode where we will adapt to the marketplace.

Accepting that change is coming is an important step towards adjusting to the new normal. And, if the business models are as weak as Bruner implies, that could mean a cheaper opportunity down the line, with the initial investors losing the billions as their companies are liquidated. As a provider-agnostic company PAC could benefit from such. It need not pick any one to partner with today. Instead it can wait to see who gets hardware flying and operational and maybe even finds itself selling bits and bytes at fire sale prices.

We’re not placing bets on any of them right now. We’re just going to be ready to move and ready to take advantage when the time comes. We don’t have to pick a winner. We just have to take advantage of them.

The other angle Bruner is keen to highlight is that the mobility business, particularly in the aviation sector, will be able to take advantage of partial coverage scenarios. If a LEO or MEO provider fails before the full network is launched the bits in orbit may still be enough to augment the GEO coverage in play, “One thing about aero that is nice is we can take advantage of a partial constellation where most applications cannot. So as they’re building out, launching satellites and improving satellite designs, we’ll be ready.”

Bruner is not alone in this assessment. Global Eagle‘s EVP Connectivity Josh Marks talked up MEO constellations during the same event, particularly with respect to extending his company’s network to cover Hawaii. That’s a market it has not yet needed to serve but one that he believes is viable, even with existing mechanically steered antennae. Beam and satellite switching means drops in coverage but Marks is confident GEE’s existing kit can sufficiently minimize those interruptions (I remain skeptical of such claims in the context of can it be fast enough that passengers really don’t notice).

With a couple of years to go before the hybrid coexistence is necessary there is time for improvements in the phased array “flat panel” antenna options. Or maybe someone decides to pick up the ThinKom Ka-band technology being shopped at the show. It is mechanical but, much like the Ku-band kit used for Gogo‘s 2Ku service, promises the ability to scan the full horizon for a satellite handoff faster than other multi-axis mechanical designs. It might not be instant but if it can get close that might just be enough.

Bruner also acknowledges that his connectivity business remains a cost center today rather than profitable. But he also believes others are in the same boat, especially when evaluated against full costs, not just top-line revenue versus ongoing operational expenses.

When we measure it by itself we say it is not yet profitable, though we’re on a track to be there soon; we’re on a track to be there soon. The benefit it has brought to our business in combined IFE and connectivity sales is very, very strong. I’d say 80-90% of all installations have both PAC IFE and connectivity. That’s brought value to Panasonic. We’re reinvesting a tremendous amount in the network; we’ll get there sooner than everyone else.

Perhaps scaling back on some of the heavy capital outlay and hoping to cherry-pick a cheap network in a few years will help with those numbers.